Insider trading investigation: If convicted, Rengan Rajaratnam faces light sentence

Rengan Rajaratnam, who is on trial for conspiracy to commit insider trading, would face a much lighter sentence than the 11-year prison term being served by his older brother, Raj Rajaratnam, the former billionaire hedge fund manager, if he were convicted.

Now that a federal judge has dismissed the two most serious charges against Rengan Rajaratnam, a 43-year-old former trader, legal experts said that he could get as little as just a few months in prison if he is convicted on the conspiracy count. The legal experts, who did not want to be identified because they have some familiarity with the criminal case, said the problem facing prosecutors is that the bulk of the conspiracy charge rests on an attempt to get inside information for a stock trade in 2008 that ultimately lost money for Rengan Rajaratnam and his older brother's hedge fund, the Galleon Group.

The maximum prison time for a conviction on a conspiracy to commit securities fraud charge is five years. But in assessing the appropriate prison time for a financial crime, a judge and the probation department for the federal courts typically look at the level of economic harm or profit that can be tied to a defendant's actions. These legal experts said that because the trades in shares of Advanced Micro Devices lost money for the hedge fund, it would be hard to justify significant prison time for Rengan Rajaratnam.

The case is expected to go the jury next week.

Prosecutors contend that Rengan Rajartnam was part of a conspiracy to get inside information about a deal between Advanced Micro Developments and the government of Abu Dhabi. Such information, the prosecutors say, enabled Galleon to make trades ahead of the West Asian country's investment in the chip maker. At the trial, prosecutors introduced wiretap evidence in which Rengan Rajartanam boasts to his brother that he had a friend working for the consulting firm McKinsey & Company who was a "little dirty" and had recommended that he buy as much shares of AMD as quickly as possible.

Galleon's trading in the stock largely took place from August through early October 2008. But shares of AMD plunged, despite the announcement of the deal with the Abu Dhabi government as all stock markets tumbled during the early days of the financial crisis. Rengan Rajaratnam's friend, David Palecek, whom he had met at Stanford Business School, died in 2010 of complications from a staph infection.

Judge Naomi Reice Buchwald of Federal District Court in Manhattan has made it clear she was troubled by aspects of the prosecution's case. On Tuesday, she dismissed the two securities fraud charges, ruling that no reasonable jury could find that Rengan Rajaratnam had used inside information to make trades in shares of Clearwire while working for his brother's hedge fund. On Wednesday, in deciding to let the conspiracy charge go to the jury, Judge Buchwald said that some some of the prosecutors' legal arguments were "unpersuasive" and "don't make any sense at all."

It is no secret that when judges are troubled by a criminal case, they will often look for ways to impose a light sentence if a jury votes to convict.

©2014 The New York Times News Service